Campaigns Finance and Taxation Reform

Bitesize Budget – Capital Gains reform

Sally Walmsley
Written by Sally Walmsley

Last month we outlined our key asks of the government in our budget submission, ahead of November 22nd. 

Here we break down the document to run through what we believe the government could do to support you, the residential landlords out there offering vital homes to let at a time of housing crisis. 

Here we outline our call for the 20% rate of Capital Gains Tax to be applied when a landlord is prepared to sell a property to a sitting tenant – as a way of supporting them into home ownership.

The 28% rate of Capital Gains Tax was cut to 20% for everything other than residential property in the 2016 Budget, in a bid to incentivise investment in companies rather than property.

However, the RLA believes the need for housing is now so pressing that investment in homes is more important than ever.

RLA research, backed up by the findings of the Royal Institution of Chartered Surveyors (RICS) shows many landlords are considering getting rid of some of their properties – or selling up altogether.

Against this background, and in light of the Government’s objective to support home ownership, the RLA believes changes to the Capital Gains Tax regime could encourage landlords to dispose of their properties in a way that meets the Government’s policy objectives.

The RLA believes that where a landlord is prepared to sell a property to a sitting tenant the 20% rate of Capital Gains Tax should be applied.

DJS Research findings for the RLA report that 77% of private landlords would consider selling their property to tenants if the tax liability was waived.

This, in turn, suggest that many might be encouraged if the tax liability was reduced.

The waiving of CGT in such circumstance is a proposal supported by both RICS and ARLA.

In terms of the Government meeting its own objectives, if it wants to boost home ownership encouraging landlords to sell to tenants rather than investors is something it should surely welcome?

In practice, protections could include a condition that the tenant buying the property has lived there for at least a year. This would prevent ‘false tenancies’ being granted to prospective purchasers on the day before completion.

A requirement could also be included that the transaction would have to be for a market value. This would help to ensure that the transaction is real and is not being used to reduce CGT on some other taxable transaction.

It also means smaller landlords could emulate rent to buy models – buying homes to rent to tenants with the intention of ultimately selling to them and benefitting from a reduced CGT liability.

Including rent payments in credit scores

The RLA is also backing plans to help tenants into homeownership by working with credit rating agencies to include rent payments as a standard part of calculating credit scores.

Over 60% of landlords have expressed support for such a move according to the RLA’s research, which surveyed almost 3,000 landlords.

Such a move towards including rent payments in credit scores would then not only help tenants, but would support landlords to better understand the rent history of a prospective tenant.

The RLA’s work on the plans was cited by a number of MPs during a Westminster Hall debate on the proposals

At present, credit rating agencies do not routinely include rent payment history when calculating credit scores. This means a tenant can find it difficult to access a mortgage, even if they have a long history of rent being paid in full and on time.

In its submission ahead of Wednesday’s budget, the RLA has also called for the government to axe its controversial cuts to Mortgage Interest Relief and to introduce tax incentives for landlords offering longer tenancies and energy efficiency improvements.

To read the full budget submission click here.

About the author

Sally Walmsley

Sally Walmsley

Sally Walmsley is the Magazine and Digital Editor for the NRLA. With 20 years’ experience writing for regional and national newspapers and magazines she is responsible for editing our members' magazine 'Property', producing our articles for our news site, the weekly and monthly bulletins and editorial content for our media partners.

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